Foreign banks’ representatives in Ethiopia are closely inspecting the newly proposed financial code which is expected to allow foreigners to get into the banking sector through; joint venture basis, minority share in local banks and by opening branches and subsidiaries.
The bill to open up the sector was tabled for final discussions and approval by the Council of Ministers last month. The Council of Ministers approved the policy after an extensive discussion after adding their inputs to the draft document. The council has also passed the decision for the new policy to be implemented.
“This is not what the international financial sector players expected. This will lead to a loss of interest to get into the market for many potential aspirants,” said one of the foreign bank representatives who requested to remain anonymous.
“Limiting the role of foreign financial institutions in the market, for instance having minority share could limit the position of foreigners in the management and decision making process, which is not attractive,” said the representative.
The opening of the banking industry for foreign investors is expected to improve the forex shortage in Ethiopia, and access to finance. Moreover, it is stated that the opening of the banking sector to foreign investors will strengthen linkage of Ethiopia’s economy with the rest of the world, as well as bring new technologies and know-how to the industry.
However as Getachew Beshawerd, Managing Director of Chartered Accountants and Management Consultants- a UK based consultancy opines, this option protects local banks to having power in the market.
“Government should not fully open the sector. If that were to happen it would destroy competitiveness of local banks, and the economy could fully be monitored by foreigners,” said Getachew, adding, “Even with the limited options; in principle this could be profitable and a good option in improving forex revenue and access to finance. Furthermore, it would be better for the efficiency in the banking service, since it will result in technological and knowledge transfer, in addition to boosting global competitiveness, and integrating Ethiopia’s economy into the global financial system.”
“However, all these need diligent work,” Getachew explains.
“Government should see long term advantages and consequences properly as it has the opportunity to treat the matter before anything ensues. For example, if the government aims to increase foreign currency by opening the market, it must also be aware that this new shareholders will take dividends in foreign currency. So the regulatory body should see each and every corner properly before opening and ratifying,” he elaborated showing how government ought to be vigilant, whilst opening the financial sector.
Few months ago, Yinager Dessie (PhD), governor of the National Bank of Ethiopia whilst speaking with the media indicated that foreign banks’ entrance to Ethiopia will be through buying shares from local banks and on joint venture basis, at first. As the governor highlighted, many African banks are already showing interest to come and invest in Ethiopia.
Also as Getachew stated, if foreign banks were going to buy shares from the local banks, it has to be officially known how the valuation of the banks are undertaken.
“How is the share transfer going to be? Are banks going to sell their existing share or new share are going to be floated? Because if it is their existing share, the incoming foreign banks are going to buy the share from shareholders and will only benefit the shareholders. Whereas if it is new shares, they will buy it from the company and benefits the company. So this has to be indicated in the regulating document,” he underlined.
“Besides the main proclamation there will also be a side regulation. NBE has to be sure that this regulations goes in parallel with the main proclamation. Such kind of regulations once they are published and has something wrong in it, it’s difficult to correct and will have a long term impact on the economy more than one can imagine,” Getachew stressed.
The fact that Ethiopia has closed its doors to foreign banks has benefited the sector until now.
Foreign banks entry to cut with a double edge
New insurers’ capital directive receives mixed bag reactions
Minimum paid up capital set to 500 million birr
The National Bank of Ethiopia’s decision to increase the minimum paid up capital of the insurance industry to half a billion birr has received mixed greetings by sector pundits.
As per the decision of NBE under the ‘minimum paid up capital for insurance company directive no. SIB/57/2022’ the minimum paid up capital has expanded by 567 percent to 500 million birr for both general and long term insurance businesses.
The minimum paid up capital of insurance companies as per the 2013 directive no SIB/34/2013 was 75 million birr (60 million birr for general insurance and 15 million birr for long term insurance) for both businesses.
As per the new directive which was issued on September 23 after becoming effective from September 15, following the signage of Yinager Dessie, Governor of NBE, indicated that the minimum paid up capital for general insurance will be 400 million birr and 100 million birr for long term (life) insurance business operations. The percentage for both has climbed by 566.6 percent compared with the 2013 directive.
Existing insurers are expected to fill the stated minimum capital by June 30, 2027, while those under formation are expected to reach the amount in seven years after the commencement of their operation.
Article 5.2 of the new directive stated that an insurance company in the process of share subscription, which succeeds to collect a minimum paid up capital of 60 million birr for general insurance business or 15 million birr for long terms insurance business or 75 million birr for general and long term insurance businesses from founding shareholders, holds subscribers meeting and submits final application to the NBE within a maximum of one year after the effective date of this directive shall be permitted to get an insurance business license with a minimum paid up capital of 60 million birr for general insurance or 15 million birr for long term insurance or 75 million birr for both, “however such an insurance company shall be required to comply with the new minimum paid up capital amount within seven years after the commencement of the insurance business.”
Insurers are also expected to submit their action plan as to how the required paid up capital shall be fulfilled.
The new decision of the regulatory body has now been viewed by experts in different angles.
On one side, the new amount is said to be exaggerated and unrealistic to which insurers will find it hard to fulfill the target over the short stipulated period, opine some experts. On the flip side, other experts opine that the 500 million birr is very small compared to the economy of the country, to which insurers shall achieve the minimum rate easily.
One of the experts that Capital approached for comments on the issue criticized the decision, stating that NBE’s move was not considering the reality on the ground.
He said that some pioneer insurers that have been operational for the past close to three decades have very low capital amounts compared with the new NBE rate.
“For over 20 years, these insurance companies were not unable to pass 200 million birr in paid up capital. So how can we project them to attain the new minimum rate in the coming five years’ time,” Ebsa Mohammed, General Manager of Alfa Certification Consultancy, who is one of the experts who criticizes the latest move by NBE, argued his point.
He further explained that in the very least the Central Bank should have hinted the insurers like it did the bankers, before the revision of the former directive.
“Before revising the banking sector’s minimum capital rate, the Central Bank frequently stated that banks should increase their capital; after which it changed the directive. However, for the insurance industry the move has been sudden,” he illustrated.
He said that more than half of the 17 private insurers, which make up the majority of the operations have been running for two decades now at a capital lower than that of 500 million birr, “So as per past experience and trend it will be difficult for them to attain the new rate within a very short period.”
Experts also accepted that there are some stand-out insurers who have already reached the new minimum capital rate.
“However, the value of the birr will be incomparable. Nonetheless, these top notch insurers achievement in attaining such capital remains impressive but it is also passive,” Ebsa said.
He and others who share Ebsa’s view argue that the number of new entrants set to penetrate the industry shall significantly drop.
“The sector is not attractive for potential investors and when these kind of new challenges happen it will further constrict others who are working to form new insurance companies,” the experts said, underling, “The insurance business is not like the banking service.”
They said that as a result, we may in the foreseeable future see instances where insurers are faced with mergers.
With a view of the other side of the coin, Ebsa supported the NBE move citing that this will allow the public to see the strong business actor in the insurance industry.
“In the future they have to design and follow a modern business model and be ready for the upcoming competition since the market will be open to the global competitors,” Ebsa, a consultant on the insurance business remarked.
Unlike Ebsa and co’s opinion some other experts support the NBE directive. Some of them say the amount is not big when compared to the country’s economy and the level of potential reach of the insurance industry.
For instance, Assegid Gebremedhin, CEO of At Insurance Broker and Consultant, said that the new decision is basic for the insurance industry since one of the major measurement for competition is companies’ capital.
“One of the measurements of the insurance sector growth and their strength is the increment of their capital,” he says, adding, “The GDP is growing that means domestic service is also growing. So the capital of the insurance companies has to reach on the level that shall support the growth of the economy. Due to that, the capital increment is a must for the sector.”
“The government annual budget has reached 765 billion and similarly the economic transaction is at 1.4 trillion birr; so financial firms should have from one to five percent of the budget as capital, but their current aggregate capital of the insurance industry has not reached 20 billion birr,” he added.
“The global and African trend shows that insurance companies’ capital is increasing regularly. In our case the sector is not growing because there is no way for growth, but our perspective towards capital is not shaped properly,” he added.
He argued that there is a potential to reach the minimum paid capital rate. One of the ways to increase the capital is floating more shares for the general public. Insurers have to include additional shareholders to the poll.
“Unlike the banking industry, most of the old insurers have very small shareholders. Why should they not work towards having thousands of shareholders?” he rhetorically remarked.
Experts claimed that one of the reasons for the sector’s slow growth was because of the small amount of capital. The insurance penetration in Ethiopia is less than one percent of the GDP, which is very low compared with peer countries.
Asseged said that the economy is joining the capital market which means that they can have short term investments that may also increase their capital and income.
He re-affirmed his stance on the matter by stating that the new comers to the industry will attain the set capital amount easily.
Bona fide partnership between Djibouti, Ethiopia prosper logistics
The logistics handling and cooperation between actors in Ethiopia and Djibouti is stated to be growing every year as tremendous performances in the sector continue to be realized.
Ethiopia for close to a quarter century has been benefiting from Djibouti as its sea outlet. Djibouti on the other end has being growing from strength to strength in order to catch up with the growing demand from Ethiopia, the most populous nation in the world without a sea outlet. Djibouti has developed over the years to bridge Ethiopia’s needs through massive port facilities’ developments courtesy of huge investments.
For instance, the small east African nation was able to attain major scores on the World Bank container port performance index (CPPI) 2021. According to the World Bank report, the Djibouti port has been able to reel in massive improvements which place the country as one of the top performing port operating countries.
So far most of the Ethiopian cargos pass through Djibouti ports, and similarly Djibouti is always expanding its port handling capacity and efficiency.
It is noted that one of the major achievements was the dispatch of huge amounts of fertilizer within a very short period of time, unlike the past.
Djama Ibrahim Darar, CEO Doraleh Multi-purpose Port (DMP), said at the acknowledgement event held a week ago in Addis Ababa that the port is working tirelessly to be efficient.
He said that in the logistics service fast operation and short stay of vessels at the berth is crucial. In order to achieve that, his team is handling the operation throughout the day to discharge consignments to the terminal and dispatch it to the destination.
Roba Megersa, CEO of Ethiopian Shipping and Logistics Services Enterprise (ESLSE), said that the port operations in Djibouti is recording improvements every time.
“Prior to 2019/20 season the port performance was not that much amplifiable, meanwhile the volume of fertilizer was lesser than current amounts,” he recalled with regards to the coming of fertilizer consignment.
“One of the reasons for that was that the arrival of vessels was not harmonized and limited efficiency of the port like equipments and silo; so to some extent we have been using other ports like Port Sudan and Berbera,” he remembered.
“Previously, we were served at SDTV, the oldest facility, and now the come up of DMP, newly built and ultra-modern port, has created changes and has shown improvements every year,” Roba added.
“Most of all, Djibouti’s cargo handling in terms of container and bulk is more modern than any other port around the area including ICT with up and running machineries at the facility. The operation is also mostly controlled by Djiboutian leadership with minimal Chinese support,” the CEO said, adding, “At the current stage, I am happy of the partnership with Djibouti ports; they are highly responsive and starting from planning, we are working coordinately. I don’t expect better partnerships than this from our neighborhood partners, because this solid partnership is top tier.”
“We are working as a unit with Ethiopian partners and we have similar goals of focus. In the logistics business time is very important, so our team is working with that concept; that is why we discharge more than 20, 000 metric tons of cargo in a single day,” Djama Ibrahim Darar told Capital.
“We want to assure the efficiency at the port so we will keep working hard to handle vessels at the berth on time and deliver the cargo with trucks and train on time to Ethiopia,” the DMP CEO said.
Roba told Capital that unlike the industry practice, the two sides are working informally, “they understand us and it is the same for us. For instance sometimes we delay payments and they understand it. Similarly, when equipment failure happens at the site, we understand them.”
According to the CEO, in terms of vessels handling, cargo loading shall be very fast in high end ports like China and elsewhere than discharging.
“As far as my experience, high volume of discharge is happening at DMP unlike the trend in other ports globally. Nearly 20,000 metric tons of fertilizer cargo was discharged through silo at DMP in a day, and similarly 17,500 metric tons was dispatched that means 490 trucks of cargo to Ethiopia,” he said.
He added that the port has enabled to manage the staffing of 37 wagons of a train manually in a single day, “There is no measurement for such kinds of huge success.”
The working culture at the port is also very impressive since they serve customers 24 hours a day, “this is not the same in Ethiopia.”
“The harbor master and the CEO of the port and his team are very responsive, which accelerate the corridor operation and ESLSE’s activity,” Roba highlighted.
According to Roba, in a high season, the number of trucks on a daily fleet from Djibouti to Ethiopia is 1,500 trucks which is mainly loaded with container and fertilizer consignments, and sometimes wheat and coal.
“In the past at any given time you may see 300,000 tons of steel at the port and open yard that is now not more than 10, 000 tons,” he expressed how the port efficiency is uplifting very time.
“In my understanding Djibouti alone is very ample to managing Ethiopian cargo. When it comes for the time that Ethiopia uses other ports, it will be for additional capacity rather than alternative,” he said, adding, “In case of geographical proximity, Berbera and Lamu ports shall be used by Ethiopia.”
“Both the leadership at the two countries has close relation on the day to day activity of DMP and ESLSE. So we are happy to deliver the very crucial cargo to our Ethiopian farmers on time,” Djama Ibrahim Darar concluded.
For the CPPI 2021, the east African logistics hub registered dramatic improvements coming in at 19th and 24th positions in administrative and statistical approaches respectively.
Djibouti currently operates the modern Doraleh Container Terminal Management Company (SGTD), while its other multiple port facilities are also handling containerized cargos.
Ethiopian airlines, Geven-Sky Tecno partner to supply Boeing with insulation blankets
Ethiopian Airlines and Geven-Sky Tecno inaugurate a state-of-the-art facility for the manufacturing of Insulation Blankets for Boeing 737 MAX airplanes. Similarly, Ethiopian Airlines, Africa’s biggest Airline sets its eyes to expand its manufacturing hub in one of the industrial parks in the country.
As indicated on the official inauguration ceremony held on Wednesday September 21, 2022 in the attendance of senior government officials, diplomats, and the management team of the airlines, the two companies committed to jointly manufacture the products in Italy and Ethiopia, as a supplier to the Boeing Company.
The new joint venture company of Ethiopian Airlines and Geven-SkyTecno, named “Ethiopian Sky Technologies”, is based in Addis Ababa with primary manufacturing facility at Bole Airport. Ethiopian Airlines holds 51percent stake while SkyTecno holds 49 percent stake of the newly established company.
“As part of our vision to develop Aerospace manufacturing industry we are glad to unveil Ethiopian Sky technologies” said MesfinTasew, CEO of Ethiopian Airlines Group adding, partnership with Geven-SkyTecno takes our capability to the next level We are happy that we have gone into this tri-partite relationship with Geven-SkyTecno and Boeing and that we started manufacturing and exporting the Aircraft Thermo-Acoustic Insulation Blankets for the 737 MAX. We are keen to expand the scope of activities to other aerospace products to the mutual benefit of all parties”.
The Joint Venture focuses on delivering tailor-made solutions for Boeing 737 MAX airplanes. Products are manufactured in a multicultural environment in synergy between the African and European continent, subject to strict quality control, in order to meet the most demanding expectations of the aircraft industry.
As indicated, Ethiopian Sky Technologies is manufacturing and delivering the aerospace products in accordance with the terms of the Agreement and the stringent requirements of the Aerospace Industry. In addition to building the aerospace manufacturing capability of Ethiopian Airlines, the partnership also enhances Ethiopia’s manufacturing infrastructure and international trade connections.
Geven-SkyTecno has been contributing its process technology proficiency, manufacturing know-how as well as being responsible for speeding up the industrialization, qualification processes and training skills to the Joint Venture.
“We are very pleased to announce this joint venture with Ethiopian Airlines, with whom we are looking forward to working together,” said Alberto Veneruso, Managing Director of Geven-SkyTecno, adding, “Our manufacturing excellence combined with our expertise in process technology, industrial efficiency and world-class distribution capabilities will provide our customers with best-in-class insulation solutions.”
Ethiopian Airlines being the fastest growing Airline in Africa commands the lion’s share of the Pan African passenger and cargo network operating the youngest and most modern fleet to more than 130 international passenger and cargo destinations across five continents. The airlines is currently implementing a 15-year strategic plan called Vision 2025 that will see it become the leading aviation group in Africa with Seven business units: Ethiopian International Services; Ethiopian Cargo and Logistics Services; Ethiopian MRO Services; Ethiopian Aviation Academy; Ethiopian ADD Hub Ground Services, Ethiopian Airports Services and Ethiopian Express Services (Domestic).
